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China and Central and Eastern European Countries: Regional Networks, Global Supply C

Author

Listed:
  • Fung, K. C.

    (University of California)

  • Li, Ke

    (University of California)

Abstract

China has become leading recipients of foreign direct investment (FDI). Meanwhile, an increasing share of global FDI is going to many Central and Eastern European countries (CEECs). What is the relationship between inward FDI of China and the CEECs? We conceptualize the relationship according to three alternative paradigms: (1) China and the CEECs each exist in its own regional production network, with no linkage between FDI flows into China and into CEECs; (2) China and the CEECs together comprise a global production network, so that China’s FDI is positively related to CEECs’ FDI; and (3) FDI into China is a substitute for FDI into the CEECs, with the correlation being negative. In this paper, we study empirical estimates of this issue for 15 CEECs for 1990-2004 using four different econometric approaches: FGLS with Random effects, FGLS with fixed effects, EC2SLS and GMM. The result supports the conclusion that China's inward FDI does not crowd out CEECs' inward FDI. In fact, it shows that in some regressions FDI flows in these two regions are moderately complementary. Our analysis also confirms the importance for FDI flows of determinants such as market size, degree of trade liberalization, labor quality and a healthy global FDI supply.

Suggested Citation

  • Fung, K. C. & Li, Ke, 2009. "China and Central and Eastern European Countries: Regional Networks, Global Supply C," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 24, pages 476-504.
    • Handle: RePEc:ris:integr:0483
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    Citations

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    Cited by:

    1. Ewa Cieślik, 2019. "Looking for the sectoral interdependence: evidence from the Visegrad countries and China," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(4), pages 2041-2062, July.
    2. Gheorghe H. Popescu, 2014. "FDI and Economic Growth in Central and Eastern Europe," Sustainability, MDPI, vol. 6(11), pages 1-15, November.
    3. Paul De Grauwe & Zhaoyong Zhang & Chan-Hyun Sohn, 2016. "The Effect of China's Rise on FDI Competition in East Asia: Crowding-out or Crowding-in?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(1), pages 110-134, February.
    4. Michalopoulos, Constantine & Ng, Francis, 2013. "Trends in developing country trade 1980-2010," Policy Research Working Paper Series 6334, The World Bank.
    5. Masahiro Tokunaga & Ichiro Iwasaki, 2017. "The Determinants of Foreign Direct Investment in Transition Economies: A Meta-analysis," The World Economy, Wiley Blackwell, vol. 40(12), pages 2771-2831, December.
    6. Tokunaga, Masahiro & Iwasaki, Ichiro, 2014. "Transition and FDI: A Meta-Analysis of the FDI Determinants in Transition Economies," RRC Working Paper Series 47, Russian Research Center, Institute of Economic Research, Hitotsubashi University.

    More about this item

    Keywords

    foreign direct investment(FDI); regional networks; global supply chain; China’s FDI; central and eastern european countries’ FDI;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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